phamENG
Structural
- Feb 6, 2015
- 7,568
So this is probably better placed in the 'Engineering Business Practices and Issues" forum...but it's fairly specific to structural engineers and a few of the members that I think may have the best insights don't seem to pop up over there very often. So here goes:
Lot's of posts come up about branching out on your own, starting an engineering side business, etc. They all want to know about what it will take, what it wall cost, what they need to do. But I never see the question asked or the issue brought up: how much will it cost to shut it down? Failure is always a possibility, but even a successful career must come to an end eventually.
It's a hotly debated fact that a structural engineering consulting firm is essentially worthless. If you've built up a nice client list, have a staff of high quality, loyal employees, and a decent accounts receivable with reliable payments, you may be be able to get something. But, at best, you'd be looking at minimal equity tied up in personal property (computers, furniture if you didn't rent it, etc.) and a percentage of the accounts receivable and contracted work. Anything above that is really just goodwill, and no sensible business person is going to pay for that in this industry (unless you're the Sears of the 1950s in the AEC industry). So maybe you can name one of your loyal employees as president and transfer ownership. That could be good.
But a lot of us are solo or have very small teams where such a sale or transition isn't feasible. What then? The liability from projects doesn't just evaporate. That's why tailing insurance exists, to cover you in case of a claim after the business stops operating. So those risks exist, and since our profits are largely based on risk exposure from liability (minimal capital is tied up), I think more attention should be paid to this. For example: if I get in a car wreck this afternoon or have a stroke tomorrow and I'm unable to do my job anymore, I have to close up shop. My income goes away but there is some non-zero dollar amount that I have to keep paying for some period of time, and some amount of liability risk that continues with me as well. So, let's say the statute of limitations is 7 years for civil or criminal claims. That's seven years of continuing to pay E&O insurance, without getting paid. It seems to me that the cost of that could be quite burdensome. So I should be accounting for it now. Whether it's in a long term disability insurance policy for accidents now, long term financial planning and adjusting my overhead numbers to account for it now and save/invest the money so it's there later when I retire, or some other means, it seems a prudent thing to think about.
What does everyone else think? For those who are retired and have gone through this, what did you do/wish you had done? For those not there yet, have you thought about this? Anyone think I'm crazy? (Don't answer the last one...)
Lot's of posts come up about branching out on your own, starting an engineering side business, etc. They all want to know about what it will take, what it wall cost, what they need to do. But I never see the question asked or the issue brought up: how much will it cost to shut it down? Failure is always a possibility, but even a successful career must come to an end eventually.
It's a hotly debated fact that a structural engineering consulting firm is essentially worthless. If you've built up a nice client list, have a staff of high quality, loyal employees, and a decent accounts receivable with reliable payments, you may be be able to get something. But, at best, you'd be looking at minimal equity tied up in personal property (computers, furniture if you didn't rent it, etc.) and a percentage of the accounts receivable and contracted work. Anything above that is really just goodwill, and no sensible business person is going to pay for that in this industry (unless you're the Sears of the 1950s in the AEC industry). So maybe you can name one of your loyal employees as president and transfer ownership. That could be good.
But a lot of us are solo or have very small teams where such a sale or transition isn't feasible. What then? The liability from projects doesn't just evaporate. That's why tailing insurance exists, to cover you in case of a claim after the business stops operating. So those risks exist, and since our profits are largely based on risk exposure from liability (minimal capital is tied up), I think more attention should be paid to this. For example: if I get in a car wreck this afternoon or have a stroke tomorrow and I'm unable to do my job anymore, I have to close up shop. My income goes away but there is some non-zero dollar amount that I have to keep paying for some period of time, and some amount of liability risk that continues with me as well. So, let's say the statute of limitations is 7 years for civil or criminal claims. That's seven years of continuing to pay E&O insurance, without getting paid. It seems to me that the cost of that could be quite burdensome. So I should be accounting for it now. Whether it's in a long term disability insurance policy for accidents now, long term financial planning and adjusting my overhead numbers to account for it now and save/invest the money so it's there later when I retire, or some other means, it seems a prudent thing to think about.
What does everyone else think? For those who are retired and have gone through this, what did you do/wish you had done? For those not there yet, have you thought about this? Anyone think I'm crazy? (Don't answer the last one...)
